Can an "Irrevocable Trust" Name Another Trust as a Beneficiary?

You have many options in selecting a beneficiary for your trust.

Trusts are legal agreements that allow someone to transfer property or money to a trust that will then be managed by a trustee for the benefit of beneficiaries. The reason that a grantor might wish to make a trust irrevocable is so that the grantor will no longer possess any incidents of ownership of the property or cash. Therefore, items placed in trust would be excluded from the grantor’s estate after death. Excluding property from an estate allows grantors to circumvent the probate system as well as certain taxes.

What is an Irrevocable Trust?

An irrevocable trust is a trust agreement where the grantor transfers complete ownership rights of property or cash to the trust and does not intend to have the property or cash revert back to him. The irrevocable trust cannot be modified, amended or revoked. In order to be an irrevocable trust, the trust document must explicitly provide for it to be treated as such.

Impact of Irrevocable Trust

Creating an irrevocable trust allows the grantor to reduce his estate’s potential estate tax liability as well as income tax on the cash or property during the grantor’s life. Depending on the language in the trust, a revocable trust can become irrevocable upon the grantor’s death or incapacitation.

What is a Beneficiary?

Beneficiaries are the designated recipients of the income or principal of the trust. The grantor who created the trust may designate that the beneficiary will receive both the income and the principal of the trust or the grantor may designate different beneficiaries to receive the parts of the trust.

Who May Be Named Beneficiaries?

The grantor is allowed to name as a beneficiary of his trust any person, legal entity or organization that he wishes. Accordingly, an irrevocable trust may name another trust as a beneficiary. However, the grantor should avoid having an irrevocable trust make distributions to a trust where the grantor is the primary beneficiary of income or principal, because it may appear that the grantor is trying to evade taxation and this type of convoluted transfer would make it appear that the grantor did not transfer complete ownership.

References

• Missouri Bar; What is a Revocable Living Trust?